JC Flowers in pursuit of UK bank assets

By IBT Staff Reporter On 11/25/09 AT 3:40 AM

U.S. private equity investor JC Flowers is circling Britain's weakened banking industry, prepared to swoop on forced divestments over the next 12 months, according to the firm's new European and Asia Pacific boss.

David Morgan, a former chief of Australia's Westpac Banking Corp , told Reuters on Wednesday that JC Flowers had a $2.3 billion fund available for such acquisitions and that only a very small portion of this had been invested so far.

Partly nationalized lenders Royal Bank of Scotland (RBS) and Lloyds Banking Group Plc are both expected to put assets up for auction over the next few years. RBS's commodity-trading unit is anticipated to be among them.

RBS and Lloyds have had directions from the authorities that they do need to divest significant parts of their business, Morgan said in a phone interview from Brisbane.

Morgan, who was nine years at the helm of Westpac, Australia's third-biggest lender, has spent almost two years as Australian chairman of JC Flowers, which was founded by former Goldman Sachs banker Christopher Flowers.

Morgan is relocating to London to take up his new, full-time role with the firm, which invests solely in the financial services sector, where he sees the most immediate opportunities.

Morgan said his strong ties with Australian bank executives meant it was very possible JC Flowers could team with National Australia Bank Ltd , Australia and New Zealand Banking Group Ltd or Macquarie Group Ltd. in the bidding for financial services assets across Asia and the U.K.

This month, the British government ordered the banks in which it is a major shareholder, including the wholly state-owned Northern Rock, to sell off assets over the next four years in order to repay their taxpayer-funded bailouts.

But Morgan said he expected the divestments to go ahead sooner rather than later, noting also a ruling by the British government that divestments be made to new players, not incumbents.

Once a unit knows it has to be divested, it probably makes sense to get on with it.

We're also in the process of discussing co-investment opportunities with a major sovereign wealth fund, so we think if we can identify the opportunities, the capital will be there, he added.

Of the Australian banks, ANZ and Macquarie are explicit in their desire to expand offshore, with ANZ focused on growth in Asia. NAB, which owns Clydesdale and Yorkshire banks in the UK, is in the process of deciding whether to expand in Britain or divest and leave.

Australia's other two big lenders, Commonwealth Bank of Australia and Morgan's former employer, Westpac are focusing on bedding down recent large acquisitions at home.